FAQ: NFA Trust / Gun Trust / Class 3

 How do I transfer a gun into an NFA trust?  An NFA weapon is transferred by means of an ATF Form 4.  A non-NFA weapon may be transferred by a bill of sale.
What is a shortbarreled rifle and how can I make one?  A shortbarreled rifle (SBR) is a rifle with a barrel less than 16 inches long.  It needs to be registered with the ATF.  Anyone over 21 years of age can make a shortbarreled rifle.  An ATF form I (approved by a Chief Law Enforcement Official (CLEO) of your area of residence) must be completed in duplicate and mailed to the ATF with photos and fingerprint cards with the $200.00 transfer tax.  Trusts and corporations are not required to have CLEO signoffs or submit photos or fingerprint cards with the Form I’s.  The rifle must be engraved with the name of person or company making the SBR.  To register an AR-15 as an SBR,  a Form I should list the lower’s make and serial number.  I usually indicate the barrel length as 4″ so that anything longer can be used on the weapon.
How do I purchase a machinegun from someone out of my state of residence? Federal law prohibits interstate transportation of Class 3 weapons between unlicensed individuals.  If your seller is an individual he can mail it only to a Class 3 dealer in your  state of residence once the Form 4 to such dealer is approved.  Then once received by the dealer he must submit a second Form 4 to ATF authorizing the transfer from him to the in state buyer. This involves a double transfer and $400.00 in tax.

Are Gun Trust Assets Exempt from Seizure by Creditors?

Texas law provides for the exemption of only two firearms from the claims of creditors. See §42.002(a)(7), Texas Property Code.

In order to protect larger numbers of firearms from potential creditors’ claims, many Texans place such property into gun trusts for themselves and family members. Gun trusts usually contain spendthrift provisions which are intended to prevent seizure of trust assets by creditors of beneficiaries. Generally, a beneficiary’s interest in a spendthrift gun trust is not subject to claims of creditors under Texas law “unless the settlor creates the trust and makes himself beneficiary.” In the Matter of Shurley, 115 F.3d 333, 337 (5th Cir. 1997). In Texas, a settlor cannot create a spendthrift trust for his own benefit and have the trust insulated from the rights of creditors. Daniels v. Pecan Valley Ranch, Inc., 831 S.W.2d 372, 378 (Tex. Civ. App. – San Antonio, 1992, writ denied).

The Shurley case involved a sizeable trust created by Mrs. Shurley and her parents. When Mrs. Shurley filed for bankruptcy she argued that her interest in the family trust has not subject to the claims of her creditors nor her Chapter 7 Bankruptcy Trustee. San Antonio Chief Bankruptcy Judge Ronald B. King, disagreed. He found that a significant portion of the trust was funded by Mrs. Shurley and that her entire 50% interest in the trust was subject to the claims of her creditors and her bankruptcy trustee. He based this decision on long standing Texas law and the Texas Property Code §112.035(d) which provides: “If the settlor is also a beneficiary of the trust, a provision restraining the voluntary or involuntary transfer of his beneficial interest does not prevent his creditors from satisfying claim from his interest in the trust estate.”

In reversing a portion of Judge King’s ruling, the Court of Appeals for the Fifth Circuit held that: “the property which Shurley herself contributed to the trust – the Marfa ranch – is not protected from creditors under state law and is therefore property of the bankruptcy estate, but that all other assets of the trust are not property of the bankruptcy estate.” In so ruling, the Court of Appeals reasoned that “allowing creditors to reach only the self-settled portion of the trust is consistent with the other long-standing rule of Texas law that a settlor should be allowed to create spendthrift trust that shields trust assets from the beneficiaries’ creditors.” Spendthrift trusts are not sustained out of consideration for the beneficiary. “Their justification is found in the right of the donor to control his bounty and secure its application according to his pleasure.” Shurley at 338. Allowing creditors to reach only that portion of a trust funded by the settlor/beneficiary furthers the policy of allowing parents to create a spendthrift trust for the benefit of their children that is protected from their creditors, while considering the statutory exception for self-settled trusts.

A gun trust can be used to shield assets from the creditors of trust beneficiaries who did not fund the trust. The beneficiaries’ interests in the gun trust, to the extent funded by such beneficiaries, are subject to the claims of their creditors.

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